The Rise of USDC: Reshaping the DeFi Landscape as USDT May Lose Dominance on Ethereum

Recently, an industry analyst expressed their views on the stablecoin market on social media. They pointed out that in the coming weeks, the supply share of USDT on the Ethereum network may drop below 50% for the first time. Meanwhile, USDC is rapidly becoming the dominant stablecoin on Ethereum, largely due to its increasingly important role in Decentralized Finance (DeFi).

Data shows that more than half of the USDC supply has entered smart contracts, amounting to approximately 12.5 billion USD. Although this ratio is lower than DAI, in terms of dollar value, USDC still leads with a significant advantage. It is worth noting that DAI's collateral also includes other assets. Currently, USDC has become the most popular stablecoin choice in the DeFi ecosystem.

In the DeFi ecosystem, lending protocols such as MakerDAO, Compound, and Aave are the main users of USDC, holding approximately 23% of the total supply of USDC. In MakerDAO, USDC primarily supports the price stability of DAI through the peg stability module. In Compound and Aave, users deposit USDC into the protocols to earn returns.

Recently, Compound Labs announced the establishment of a new company, Compound Treasury, and collaborated with relevant institutions to allow emerging banks and fintech companies to exchange US dollars for USDC. These USDC tokens will be deployed on the Compound platform with a guaranteed interest rate of 4%. The launch of Compound Treasury enables US dollar holders to enjoy the available interest rates in the Compound protocol's USDC market, while simplifying related operational processes, including private key management, conversion from cryptocurrency to fiat, and dealing with interest rate fluctuations.

With the launch of Compound Treasury and a series of initiatives surrounding a certain institution's DeFi API, this trend is likely to continue, meaning that more US dollar liquidity will flow into the DeFi ecosystem. While this may reduce the yield for depositors, it is expected to promote the widespread adoption of DeFi lending protocols. These protocols have long faced a shortage of US dollar liquidity, which is one of the main reasons for the high interest rates.

With the continuous development of DeFi, the industry has begun to pay attention to the extent to which it will continue to rely on centralized stablecoins. While centralized stablecoins have been an effective way to bring liquidity and avoid volatility issues for DeFi, this is not a long-term solution.

In addressing this issue, DAI has shown promise, although it currently holds only an 8% market share. However, ironically, the stable module that DAI relies on for stability is increasingly dependent on USDC.

Currently, no decentralized stablecoin project has been able to reach the level of success of MakerDAO, but the industry is actively exploring various design solutions for decentralized stablecoins in search of other viable alternatives. Among the most notable proposals is to completely eliminate dependence on the US dollar.

Regardless, decentralized stablecoins represented by DAI are still one of the important cornerstones for the healthy development of the DeFi ecosystem.